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Transfers of Property and Service, Research Paper Example

Pages: 3

Words: 690

Research Paper

For any transfer of assets, there arises a capital gain or loss. A capital gain is where the property transfer results in a loss for the company; hence, it will be treated as a gain. A capital loss is where the actual property transfer results in a profit. This profit is treated as a loss to the company by the taxman. These capital gains and losses are used by the taxman to calculate the tax accrued by the company. The person or corporation that the property is being transferred to matters immensely. They can make the company get tax exemptions or not. The calculation and treatment of these gains and losses depend on a number of factors (Sherris, 1998). There are various classes of assets that have different rules and various aspects must be considered when a transfer takes place. They are elucidated below.

  1. There must be the required authority to do the transfer
  2. The item being transferred must be the property of the person doing the transfer.
  3. The details of the transfer agreement.
  4. The cost price and consideration being given
  5. The date of the transaction
  6. The rights being transferred are full or not
  7. There is the aspect of inheritance tax that should be considered because they have different regulations that apply to them

The calculation and treatment of the capitals gains and losses depends on whether the transfer was in favor of a party within or outside the organization. Those two scenarios will show a difference on how capital gain and loss have an impact on the organization. When a transfer of property takes place, it is not necessary that they be equal to the cost of the property. If the property equals the transfer, then a write off will take place, but if they are not equal then a tax effect will come into play in relation to the transaction (Sherries, 1998).

Capital gains and losses will be recognized when transfer to an investment company is after 30th June 1967.  The transactions should also result in diversification of transferor’s interest and their asset bases are readily marketable stock, securities and interests. A transfer ordinarily results in the diversification of the transferor’s, transfer non-identical assets to a corporation in the exchange (Thomas, 2004).

The company has to create strategies to ensure it gets the best bargain of the capital gains and losses. This is an effort to make them pay few taxes. A sample case is illustrated below.

Hall Vs US of May 2012 case number 10-875.

This was a bankruptcy proceeding in the supreme court where the debtors wanted the capital gains tax to be as an unsecured claim of their farm. This was the post-petition sale of their farm and it was to be payment for the extent funds were available. This was to take place in regards with the unpaid balance being discharged. The objection of the IRS was sustained, as the income tax liability resulting from the transaction was not incurred by the estate as per section 503(b) of the Bankruptcy Code. This, therefore, resulted in the capital gain being neither a collectible nor a dischargeable.

The tax implication of a company is dependent on the transactions it makes and how it can utilize the available ways to minimize the tax due. These tax savings are channels of benefiting the company.

 Coded Case

Peter and John individually each transferred, to New Line Limited, considerable property having a market value of $9,000. This was in exchange for the corporation of 90 shares of its capital stock to each individual. Concurrently, New Line Limited gave Andrew, 10 shares of its capital stock. This was payment for Promotional and advertising services rendered to newline limited.

Andrew transferred no property to the corporation. Peter and John were under no obligation to pay for Andrews services. No gain or loss is recognized to Peter and John. Andrew received payment taxable as ordinary income to the limit of the market value of the shares received.

References

Sherris M, . (1998).Capital gains tax. Foster City, CA: Centre for Studies in Money, Banking & Finance.

Thomas A.K. (2004). Capital Gains, Minimal Taxes: The Essential Guide for Investors and Traders. Kentucky: Fairmark Press Inc.

Williams R.C. (2005). Capital Gains Tax: A Practitioner’s Manual. C.A.: Juta.

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